Caribbean Internet Cafe
Pre-Text
*All numbers are based in Jamaican currency.
* All numbers are rounded to the nearest dollar.
1.What managerial issues should David consider before starting the CIC?
Before starting the CIC David should consider the following managerial issues:
1. He has minimal training in business ownership. He has the background of a computer programmer, and is getting his MBA but he is still in the process of learning and doesn’t have the knowledge to start an internet café.
2. David is also planning to hire a manager with Jamaican restaurant experience to help him with the majority of his business activities; this could be an issue as he hasn’t found anyone yet. He isn’t considering the possibility that he will not be able to find someone to fill the position.
3. David also seems to have little business knowledge when it comes to pricing. He examined the market and found that the industry price was $90 per hour for internet service and that cost was considered high, yet he decided to add 30% to this number to charge at his own internet café. It is poor business sense to price his service that much higher than the already expensive prices currently in the industry.
2. Define the fixed, variable and start-up costs in this case.
Fixed costs are:
$ 480,000 - Manager Salary
$ 374,000 - Wages
$360,000 – Building lease
$ 120,000 – Internet lease
$120,000 – Contents Insurance
$120,000 – Advertising
$600,000 – Administration & Maintenance
$ 125,000 - Interest on loan* $2,299,000 Total Fixed Costs
*Interest on loan calculated at 10% per annum as we weren’t given an amortization period.
Variable costs are:
$60 per computer hour - Internet Service
$30 per person – Cost of Food
$50 per person – Cost of Drinks
$140 Total Variable Cost per customer
Start-up Costs are:
$20,000 - Advertising prior to Opening
$120,000 - Legal Fees etc prior to Opening
$7000 - Utilities Deposit (one time payment)
$1,426,000 - Equipment, Furniture
*All numbers are based in Jamaican currency.
* All numbers are rounded to the nearest dollar.
1.What managerial issues should David consider before starting the CIC?
Before starting the CIC David should consider the following managerial issues:
1. He has minimal training in business ownership. He has the background of a computer programmer, and is getting his MBA but he is still in the process of learning and doesn’t have the knowledge to start an internet café.
2. David is also planning to hire a manager with Jamaican restaurant experience to help him with the majority of his business activities; this could be an issue as he hasn’t found anyone yet. He isn’t considering the possibility that he will not be able to find someone to fill the position.
3. David also seems to have little business knowledge when it comes to pricing. He examined the market and found that the industry price was $90 per hour for internet service and that cost was considered high, yet he decided to add 30% to this number to charge at his own internet café. It is poor business sense to price his service that much higher than the already expensive prices currently in the industry.
2. Define the fixed, variable and start-up costs in this case.
Fixed costs are:
$ 480,000 - Manager Salary
$ 374,000 - Wages
$360,000 – Building lease
$ 120,000 – Internet lease
$120,000 – Contents Insurance
$120,000 – Advertising
$600,000 – Administration & Maintenance
$ 125,000 - Interest on loan* $2,299,000 Total Fixed Costs
*Interest on loan calculated at 10% per annum as we weren’t given an amortization period.
Variable costs are:
$60 per computer hour - Internet Service
$30 per person – Cost of Food
$50 per person – Cost of Drinks
$140 Total Variable Cost per customer
Start-up Costs are:
$20,000 - Advertising prior to Opening
$120,000 - Legal Fees etc prior to Opening
$7000 - Utilities Deposit (one time payment)
$1,426,000 - Equipment, Furniture